EMEA Morning Briefing: Stocks May Rise; Fed, Earnings in Focus This Week

MARKET WRAPS

Watch For: EU Business & Consumer surveys; CPI data from Germany, Hesse, Bavaria, Baden-Wuerttemberg, Brandenburg, North Rhine Westphalia, Saxony; trading updates from BBVA, Vivendi, Koninklijke Philips

Opening Call:

Shares could notch gains at the open in Europe on Monday. In Asia, stock benchmarks were mostly higher; the dollar consolidated; while oil futures and gold declined.

Equities:

Stock futures were tracking higher early Monday, with corporate earnings reports from Apple, Amazon, and others due this week along with the Federal Reserve's decision on interest rates, inflation figures from the eurozone and U.S. jobs report for April.

Recent market volatility reflects rising concerns about a potential slowdown in corporate earnings growth among the highest-flying tech companies, said Thierry Wizman, global FX and rates strategist at Macquarie.

"If you continue to get robust earnings results, it can completely swamp what is happening in the interest-rate space," Wizman said.

Liz Young, head of investment strategy at SoFi, thinks a shift to investors being "very focused on the short-term," matters the most for markets in the week ahead, and likely will continue to be a factor until a clearer path to interest rate cuts emerges.

Forex:

The dollar consolidated in Asia, supported by ebbing Fed rate-cut prospects which could sustain the allure of U.S. fixed-income assets and demand for the greenback.

U.S. economic data including nonfarm payrolls are expected to be markets' focus this week, said Jeff Ng, head of Asia Macro Strategy at SMBC.

Also, with the Fed likely to turn less dovish at this week's meeting, SMBC continues to watch for some bid in USD for week ahead, Ng adds.

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Further JPY weakness may spill over to some Asian currencies, MUFG Bank's Global Markets Research said. The dollar rose to Y159.42 this morning.

In recent months, there have been high correlations between movements in USD/JPY and those in USD/Asian currency pairs such as USD/KRW, USD/TWD, USD/THB and USD/SGD.

The much less depreciation of Asian currencies compared with large-sized depreciation of JPY seen lately could imply some stress on them this week, it added.

Bonds:

There has been a lack of sustained follow-through selling in the U.S. bond market of late, but the levels of support that are currently visible are expected to collapse if the Fed pushes back hard on rate cut expectations at this week's FOMC meeting, Oxford Economics said.

The 5-year yields, wrestling with the 4.72% area, and the 10-year note selling dry up just above the 4.70% area are both at risk of a sharp move toward 5.0% if the Fed's resolve around cuts falters, it said.

Energy:

Oil declined early Monday after the latest U.S. inflation data raised doubts that the Federal Reserve will lower interest rates anytime soon.

"Some geopolitical-risk premium has been erased from the market, and now the market is looking forward to supply-and-demand dynamics in the upcoming quarter, which should still be relatively tight," said StoneX's Kansas City energy team, led by Alex Hodes.

The near-term dynamics favor the bulls, with prices "at least maintaining current levels due to ongoing geopolitical risks overseas, economic data continuing to suggest the consumer remains resilient ... and OPEC+ remaining disciplined in abiding by their individual output quotas," Tyler Richey, co-editor at Sevens Report Research said.

Metals:

Gold fell in Asia as expectations of rate cuts by the U.S. Fed fade.

"Sticky inflation has seen policymakers shift the debate from how many times they will cut rates to whether they should ease at all this year," ANZ Research analysts said.

Investors will focus on the FOMC meeting later this week.

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Copper gained on signs of tightening supplies. Even though the economic backdrop has improved in recent months, this year's rally in copper prices was triggered by closures of mining operations in Latin America, ANZ Research analysts said.

However, the upside to copper prices could be capped by macro drivers such as ongoing demand concerns in China and lingering uncertainty over U.S. monetary policy, ING said.

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It's difficult to see what will cap the upside to the uranium price in the short term, said Shaw & Partners.

"In our view the uranium price is likely to continue moving higher with U.S. and European utilities not covered for their fuel requirements from 2026-2028 and limited new supply in that timeframe," it said and assumes a multi-year price spike to US$150/lb, before settling to its long-term U3O8 realized price assumption of US$76/lb in 2030.

TODAY'S TOP HEADLINES

Soaring Treasury Yields Challenge Stock-Market Gains

This month's rise in long-term interest rates is raising investors' anxiety about what is next for the stock market.

Treasury yields touched new 2024 highs this past week after fresh data showed lingering inflation. Wall Street traders entered the year expecting the Federal Reserve to cut rates a half-dozen times. Now they are pricing in just one. The yield on the benchmark 10-year note, which rises as bond prices fall, has climbed nearly a percentage point from its February lows, settling Friday at 4.668%.

Why the Fed looks likely to scramble back to a hawkish stance

Flash back to August 2022, when Fed Chair Jerome Powell gave a nine-minute speech at Jackson Hole, Wyo., warning investors to expect "some pain" in the economy in order to lower inflation.

His blunt, hawkish remarks now seem like a distant memory. Over the past six months, Powell and his colleagues have been leaning dovish, strongly hinting they were preparing to cut interest rates.

Forget Moonshots. Investors Want Profit Now.

Elon Musk got the market's memo. Mark Zuckerberg missed it. Cathie Wood ignored it. The message: Stop shooting for the moon, and focus on making money.

Last week brought home what any competent CEO should already know about what investors want, as Tesla shares soared 12% after disappointing first-quarter results and Meta Platforms shares plunged 11% after decent first-quarter results.

Even If the Fed Cuts, the Days of Ultralow Rates Are Over

Amid the debate over whether and when the Federal Reserve cuts interest rates, another important argument is unfolding: where do rates settle in the long run?

At issue is the neutral rate of interest: the rate that keeps the demand and supply of savings in equilibrium, leading to stable economic growth and inflation.

Emmanuel Macron Ponders Role of France's Nuclear Arsenal in Defending Europe

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In an interview with regional newspapers published over the weekend, the French leader was asked whether he was ready to "Europeanize" France's nuclear arsenal. Macron responded that European allies needed to build capabilities beyond the North Atlantic Treaty Organization to deter adversaries from using nuclear weapons. Deploying air-defense systems capable of intercepting all incoming missiles, Macron said, was one option.

Biden Continues Push for Gaza Cease-Fire in Call With Netanyahu

WASHINGTON-President Biden spoke Sunday with Israeli Prime Minister Benjamin Netanyahu to reiterate U.S. concerns about a widespread invasion of Rafah and discuss prospects for a deal that would secure a temporary cease-fire in Gaza and the return of some hostages that Hamas has held since October.

Secretary of State Antony Blinken is headed to the Middle East with stops in Saudi Arabia, Jordan and Israel to continue to push for a deal.

You Know LVMH for Its Luxury Bags. It's Also a Titan of Real Estate.

MIAMI-On a recent weekday afternoon, the Miami Design District's many plazas and pedestrian walkways were a spectacle of multicolored murals and sculptures by world-renowned artists, architects and designers. Anchored by a massive geodesic dome designed by Buckminster Fuller, the neighborhood's main plaza featured swaying palm trees and pastel blue and pink sculptures glistening under an azure sky. Luxury brands were ubiquitous, both in storefronts and on their young, well-heeled clientele, many wearing Hermès sandals, Cartier bracelets, and clutching Louis Vuitton and Chanel handbags.

Stores in the 30-acre neighborhood resemble miniature museums, with intricately built facades in metal, colored glass and even tree bark. There are two museums-plus an art school, a hotel, offices and soon residences. This Miami district was created over many years by the private-equity arm of luxury giant LVMH, which transformed the former warehouse district as part of an aggressive global real-estate strategy that is reshaping buildings, neighborhoods and whole city centers.

Musk Courts Chinese Officials to Seek Approval for Tesla's Self-Driving Technology

Elon Musk met with senior Chinese officials in Beijing on Sunday as he pushes for approval to introduce Tesla's advanced driver-assistance technology in its biggest overseas market, where it has been losing ground to homegrown electric-vehicle makers.

Musk is stepping up efforts globally for wider adoption of Tesla's "Full Self-Driving," or FSD, software feature after a dismal start to the year for the world's most valuable automaker, which saw its first-quarter profit drop to its lowest level since 2021.

How TikTok Lost the War in Washington

TikTok spent the past four years trying to fend off a U.S. ban, but it never figured out Washington.

The law signed by President Biden on Wednesday requiring a sale or ban of the popular app was in part the product of tectonic shifts in U.S.-China relations and coordinated, stealthy efforts by its critics on Capitol Hill.

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April 29, 2024 00:16 ET (04:16 GMT)

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